Correlation Between Meta Platforms and Datadog

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Can any of the company-specific risk be diversified away by investing in both Meta Platforms and Datadog at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Meta Platforms and Datadog into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and Datadog, you can compare the effects of market volatilities on Meta Platforms and Datadog and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Meta Platforms with a short position of Datadog. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and Datadog.

Diversification Opportunities for Meta Platforms and Datadog

-0.34
  Correlation Coefficient

Very good diversification

The 3 months correlation between Meta and Datadog is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog and Meta Platforms is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Meta Platforms are associated (or correlated) with Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Meta Platforms i.e., Meta Platforms and Datadog go up and down completely randomly.

Pair Corralation between Meta Platforms and Datadog

Assuming the 90 days trading horizon Meta Platforms is expected to generate 0.82 times more return on investment than Datadog. However, Meta Platforms is 1.22 times less risky than Datadog. It trades about 0.14 of its potential returns per unit of risk. Datadog is currently generating about -0.19 per unit of risk. If you would invest  57,100  in Meta Platforms on November 30, 2024 and sell it today you would earn a total of  6,490  from holding Meta Platforms or generate 11.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Meta Platforms  vs.  Datadog

 Performance 
       Timeline  
Meta Platforms 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Meta Platforms exhibited solid returns over the last few months and may actually be approaching a breakup point.
Datadog 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Datadog has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Meta Platforms and Datadog Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Meta Platforms and Datadog

The main advantage of trading using opposite Meta Platforms and Datadog positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms position performs unexpectedly, Datadog can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Datadog will offset losses from the drop in Datadog's long position.
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The idea behind Meta Platforms and Datadog pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center.
Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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